Will councils hit net zero? The £10bn question

How can local authorities fund and resource net zero plans that in some cases are set to cost billions? And what role can energy networks play in overcoming some of the barriers to local decarbonisation plans?

These were among the discussion points at the latest in a series of local authority roundtable discussions, hosted by Utility Week in association with SSEN and SGN. The event saw representatives from local authorities across the country lay out the challenges of delivering on their climate emergency promises.

This discussion focused specifically on the barriers to securing the necessary finance for these ambitious net zero projects and the resources to progress them.

As a starting point, councils wanting to compile a local area energy plan face a complex process and at least a £100,000 bill that often sees them fall at the first hurdle.

One representative of a unitary authority said: “We have a situation where a council going bankrupt isn’t a massive surprise. We’re all barely able to keep our statutory services going and every year they get more pressure added on to them.

“In that situation how do you make the argument for prioritising decarbonisation? Especially when you’re asking for a significant chunk of money just to do a plan. Not to actually do anything, just to say you will.”

Several participants in this virtual roundtable pointed out that the announcement of climate emergencies across the country over the past few years had initially galvanized both authorities and the public. However, a lack of perceived progress, the complexity of the task and the scale of investment had dampened some spirits.

A city council officer said: “For us to get to net zero in the next 13 years is going to cost, by my back of the envelope calculations, £8 billion. That’s just for the council. And in reality that’s probably more like £10 billion. A huge chunk of that is retrofitting the housing stock but there’s a whole array of other things we need to do – and none of them are cheap.

“The sheer scale of investments we need to make over those years is hard to get your head around. And it’s really hard to explain to people.”

The same participant went on to talk about a need to change mindsets within councils, adding: “We have become very adept at delivering projects but we’re not very good at delivering the programmes around them. With net zero everything has to join up, and the scope of that is massive. It also means that the big, shiny projects grab the attention but you have to explain that it won’t work if we don’t do the groundwork first.”

Show me the money

Asked where funding typically comes from, most participants pointed to the various pots of grant funding available to local authorities from government or council tax revenue.

Several spoke about the need to tap further into the private sector, including leveraging the ESG commitments of large employers in the area. There was also agreement that councils need to become more adept at engaging with financial institutions.

However, as one attendee put it: “When you’re looking at it on a project level, they’re too small for some of the financial institutions and organizations. If you’re talking £50 million, even up to £100 million, they’re just not interested. If we could go to market with a bundle of projects that might be more attractive but that’s so hard to do.”

According to one representative of a unitary authority, councils need to apply more commercial nous and focus on the potential revenue streams net zero can create – from demand side response, power generation and district heating. They stressed that these could be built into a compelling case for investment in the energy transition.

Asked where networks can play a role in filling the funding gaps, there was agreement that their skills and data can be valuable in grant applications.

Staffing the transition

The point was made several times that while access to finance is a key issue, it is inextricably linked to the wider resource challenge councils face.

There are multiple sources of government funding, for insulation schemes, low-carbon transport and heat among others. But simply applying for the schemes is resource intensive. Even when a funding bid is successful, there is then the question of how the work can be delivered.

Consultancies often fill the gap but as one participant pointed out this has its own drawbacks.

“Consultants are useful because they have the expertise, we can flex their time and also we can capitalise the costs. I have nothing against consultants but ultimately they don’t have any skin in the game. They get a fixed fee whether the project is a success or not.”

The attendees agreed it would be ideal to have these kinds of skills in-house but acknowledged that it will always be a struggle to match the private sector on wages. Several shared stories of developing expertise within their teams only to lose them to the very consultancies they were trying to avoid relying on.

Again the view was shared that energy networks could help to avoid this situation by seconding skilled staff into local authorities where they are needed. Knowledge around the energy system and the interpretation of data relating to it were seen as key skills the networks could share.

SSEN’s DSO programme manager Rory Brown stressed that the company understood the constraints local authorities are under and have already implemented a number of measures to better tailor support for councils as well as engaging with all the local authorities in their licence area. Tools include the local energy net zero accelerator (LENZA) tool – a geospatial planning software providing data on network constraints – and bespoke local authority profiles as part of the distribution future energy scenarios process.

He added: “We know that only certain local authorities are ready for these kind of tools at this particular moment in time, and that’s due to resourcing and the capacity to use these kind of tools.

“So we need to continue to work with those authorities who are at that stage but we also need to support those local authorities who need additional help. Our aim is to provide access to the LENZA tool to all the local authorities in our area by the end of 2024 through direct partnership with their teams.”

On the subject of seconding staff into local authorities, Brown pointed out that this was included in SSEN’s business plan for RIIO-ED2 but had not been funded by Ofgem. Nevertheless, SSEN is funding it anyway from its core allowance and is currently discussing power system analyst placements with some local authorities.

Meanwhile, SGN’s head of commercial development Fraser MacArthur stressed that gas distribution networks also hold data that could be invaluable in informing local net zero plans but also in funding applications.

He added: “The point around partnerships is really key. We are keen to be a partner to local authorities on net zero and I think there’s a lot that we can help you with. But I’d also stress that there are lenders and financial institutions out there that want to be part of the net zero journey and want to invest capital in long-term energy infrastructure projects right now. There are a lot of opportunities out there and we want to help councils to unlock those.”

The issue of financing and resourcing local net zero plans forms part of a new research report by Utility Week in association with SSEN and SGN, which is due to be published soon.